European Glee Trounces US Gloom

The FTSE 100 rose 1.9% to 5,314 and there were gains across all European markets. Bernanke’s gloomy conclusions that the economic climate was ‘unusually uncertain’ and refusal to be drawn on further easing measures were trumped by a shock rise in UK retail sales. Sales volumes rose by 1%, boosted by the World Cup and the sunny weather.

Analysts were pleased that it suggested consumers had not been thwarted by the Budget and appeared to have adjusted to the VAT increase. Retailers also appeared to be holding prices lower to encourage people to spend, which would suggest a continuing fall in deflation.

This wasn’t the only good news of the day. Eurozone services, manufacturing and industrial data beat forecasts, suggesting a double-dip recession may yet be avoided. Germany and France were particularly strong as their exporters benefited from the weak Euro. Although worries about the strength of peripheral Europe remain as fiscal tightening starts to bite, it appears that core Europe should hold firm.

Capita Group was the biggest riser on the FTSE 100 after announcing a 15% increase in first half pre-tax profit. It said that it is expecting to continue its growth in spite of public sector cut-backs. The shares rose 3.8% to 737p.

The banks also had a strong day’s trading in spite of Credit Suisse’s 22% fall in profits. They were buoyed by the prospect of a stronger recovery. Barclays was top of the crop, up 4.6% to 303.7p. The retailers were the other main beneficiary of the better economic news with Debenhams up 4.4% to 62p. However, it wasn't all one way - a trading update from Kingfisher, owner of B&Q, said it remained cautious on the outlook for consumer spending after reporting a fall in second-quarter same-store sales. Its shares were marginally up 0.8% to 225.3p.

British Airways was one of the FTSE 100’s top performers after it announced that it had received the regulatory green light to operate a joint business on transatlantic flights with American Airlines and Iberia from the US Department of Transportation. It received European Union approval on 14 July.

Moving in the opposite direction was UK software group Autonomy. It reported a rise in second-quarter earnings and sales, and forecast further growth for the rest of the year, but it was slightly behind market expectations and the share price was treated savagely. The shares fell 9% to 1,649p.

Imperial Tobacco Group was another one of the day’s biggest fallers. It reported a decline of 4.3% in sales volumes in the third quarter, having dropped 4% in the first half. The market had expected a more stable second-half performance and the shares dropped 2.9% to 1,853p.